Each quarter we feature a mortgage lender answering some of the most commonly asked questions about purchasing and refinancing a home.
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Spring is upon us and so is the search for that new home.
- Are you tired of finding the perfect home for you and your family only to see it slip away at the last second because you need to sell your current home first?
- Perhaps you are just dreaming about upgrading or even downsizing your current home but don't think it is possible to buy a new home without selling your current home first?
If so, I want to let you know that your dreams can come true here at Citizens National Bank by taking advantage of a bridge loan. A bridge loan is a temporary note taken out against the equity in your current home. You are able to convert your home's equity into cash to use for the down payment and closing costs of the new home you are trying to purchase.
Typically the bridge loan is written for a short period of time, usually 10-12 months. It is designed to "bridge" the gap between buying your new home and selling your current home. Often times you are required to pay interest only on the bridge loan on a monthly basis. Once your existing home sells, the bridge loan is paid off and any remaining proceeds from the sale are distributed to you. You can even use the bridge loan to pay off your existing first mortgage loan to get rid of that higher monthly obligation. This would allow you to temporarily keep your monthly obligations as low as possible on your current home while taking out a traditional mortgage and principal and interest payments on the new home.
Factors to consider when looking into a bridge loan are:
- Are you willing to take on the additional monthly obligation on both homes? Even though the payment is just interest only and is relatively small in comparison to a traditional loan, are you willing to make those payments on both homes?
- Can you qualify to make both payments on both homes with your current income?
- Do you have enough equity in your current home to take out a bridge loan? Typically lenders want to see that you have at least 20-25% equity left after you take out a bridge loan.
- Are you willing to pay the costs of an appraisal, title search, recording fee, etc for a temporary bridge loan? How important is it to you to not lose out on the purchase of the new home?
- How quickly are homes selling in your area? You don't want to take out a temporary bridge loan and not have your home sell in 10 months. If this happens then you are faced with the additional cost of "renewing" your bridge loan for an additional term.
A bridge loan is a great product to use to help make your dreams come true, but it may not be for everybody. Consult with your Citizens National Bank loan officer to find out if a bridge loan is right for you.
VP Loan Originator
Phone: (419) 238-1080, ext. 532
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